When and how did it all start?
It is said to have started during eCommerce 2.0 in the mid-2000’s in the US when platforms such as Shopify, BigCommerce and Magento made it possible for vertical brands to make and sell their own products directly to consumers.
Brands such as Diapers.com, Warby Parker, Bonobos, etc were early pioneers with an explosion of experiments in new business models through flash sales directly to consumers.
After 2010, the US saw a sophisticated cadre of vertical brands such as Allbirds, Away, Glossier, etc launch and improve – product development, manufacturing, customer feedback loops, customer experience, mobile shopping experience, payments options, purpose driven products and big investment in Brand.
Examples of the early D2C brands
In 2005, Vinit Bharara along with his school friend Marc Lore started 1800 diapers.com. Took control of the number, put up a website, did Google search ads. They could not purchase directly from manufacturers as they needed a 2 years’ operating history to start hence, went to Costco and BJ’s to buy inventory, hired a stay-at-home mom to do the fulfilment and customer service, were doing just a few orders a day. 6 – 9 months later, a magazine called Babytalk mentioned them and that’s when Diapers.com really took off.
There was nobody else doing it except for Amazon, and Amazon was doing it in a very small way, hence it was not a big part of their business. So, if one wanted to buy diapers, one could not order them online in any reasonable way. You might need them the next day because it is an emergency. But no one delivered that way, or the cost was so expensive because of the shipping. There was not a market for buying diapers or really any essentials online in a reasonable way. The only other thing that selling was drugstore.com but they were not focused on diapers.
1800diapers was renamed at Diapes.com, they also launched soap.com and beautybar.com, added new product categories for babies.
2. Warby Parker
Founded with the object of offering designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.
Every idea starts with a problem. Theirs was simple – glasses are too expensive. They were students when one of them lost his glasses on a backpacking trip. The cost of replacing them was so high that they spent the first semester of graduate school without them, squinting and complaining. Others had similar experiences and were amazed at how hard it was to find a pair of great frames that did not leave our wallets bare. Why?
The eyewear industry is dominated by a single company that has been able to keep prices artificially high while reaping huge profits from consumers who have no other options. Started Warby Parker to create an alternative.
By circumventing traditional channels, designing glasses in-house, and engaging with customers directly, they are able to provide higher-quality, better-looking prescription eyewear at a fraction of the going price.
They believed that buying glasses should be easy and fun. It should leave you happy and good-looking, with money in your pocket. And, that everyone has the right to see.
Almost one billion people worldwide lack access to glasses, which means that 15% of the world’s population cannot effectively learn or work. To help address this problem, Warby Parker partners with non-profits like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need.
Started Bonobos because the founders could not find pants that fit. They were either way too tight or too boxy. They fixed it. Now they have expanded their playbook to shirts and suits.
The secret is our signature curved waistband. It conforms to the natural shape of your waist.
Like most guys, they were not big fans of shopping. That is why they set out to build the best online shopping experience in the world, and we made it the core of what we do. We are now the largest clothing brand ever built on the web in the US.
What sets them apart – Easy returns and exchanges, Free shipping both ways and Ninja Customer Service.
Believe sleep is the superpower that charges everything people do – Spent years studying the magic and science of sleep. The more we learn, the more we are sure: Great sleep changes everything. It makes us friendlier, faster, smarter… even warmer-and-fuzzier. If we all got great sleep, the world would be brighter.
Dreamed a big dream – We started by creating an outrageously comfortable mattress and shipping it to your door in a tiny box. Now, over one million sleepers later, our mission has only grown…
Setting a new standard in sleep innovation – Our researchers, designers, and engineers at Casper Labs spend their waking hours studying sleep and creating products based on real customer needs and feedback. The result? The most innovative sleep products that no one else had ever dreamed possible.
As obsessed with service as we are with sleep – Mattress shopping should be as comfortable as crawling into bed. Whether it is our award-winning customer experience team helping you get a new bed for a big move, or our commission-free store team answering any question under the moon, we want you to rest easy.
Bringing joy to a tired industry – We want the world to love sleep as much as we do. From designing lovable products like our Nap Pillow and Glow light, to taking comfort to the sky with American Airlines, we are creating ways to turn yawns into smiles — one well-rested person at a time.
Believe all travel makes us better. At Away, it is not only our job to make every one of those journeys more seamless, but our responsibility to make a positive impact on the world. We do this through our products, through the platform we have, and the community we create. In fact, before selling a single suitcase, we made it a priority to partner with organizations seeking to create a better world for everyone. Since then, we have worked with Global Giving, Peace Direct, International Medical Corps, God’s Love We Deliver, and the Trevor Project. If you have bought anything from Away, you have also contributed to their work. The world is a shared place – together, we can leave it better than we found it.
What we make – Quite simply: everything you need away, and nothing you do not. We started with the perfect suitcase, then built from there, creating a range of travel standards developed from the travel stories of friends and seatmates. Our pieces are not “smart,”
they are thoughtful, with features that solve real travel problems and premium materials chosen to be resilient and beautiful. The result is a group of travel standards that help you find your way by staying out of it.
How we do it – To give the entire world access to better travel standards, we took the direct-to-consumer approach. Our pieces are made with the same top-quality materials as other premium luggage brands.’ But our overhead is much lower, and our quality is guaranteed—your Away suitcase will be with you for life.
The founders, Jeff, and Andy created Harry’s because they were tired of overpaying for overdesigned razors. Instead, they wanted simple, high-quality products that felt good to use, all at a fair price. When they asked around, they learned lots of guys were upset about the situation too, so they decided to do something about it.
They donate 1% of our sales to non-profits helping men access therapy and other life-changing mental health resources. They are on track to reach 500,000 men—and donate $5 million—by 2021.
Launched in San Francisco in 2015 by Tim Brown and Joey Zwillinger. As a New Zealander, Tim was aware of the wonders of merino wool, one of the mainstays of his home country’s economy. He wondered why shoemakers were not taking advantage of the material and started researching its place in the footwear industry. Several years later, he partnered with Zwillinger. The two of them created the flagship Allbirds shoes.
The company originally made wool sneakers with laces, then created a slip-on version. Earlier this year, it branched out into another material and introduced a shoe line made from the fibers of eucalyptus trees. They are similar in aesthetic to the original: Both are simple and feature zero branding. They are also the same price: “Tree runners” cost $95 per pair, the same as the wool version.
The company started out with a DTC business model, though it is since opened two storefronts, one in New York and one in San Francisco, and its currently operating pop-up shops in nine Nordstrom locations in US.
A few more DTC Brands globally – Meundies (Innerwear), Glossier (Cosmetics), Xiomi (Mobile Phones), Hims (Men’s grooming), Burrow (Furniture), Brandless (Private label groceries)
What is common for all these DTC companies?
Each one tells a story to appeal to customers, a lot of them were inspired / invested by DTC Guru – Prof David Bell of Wharton (who runs Idea Farm Ventures now) and serviced by common Brand / PR / Ad firms
Funding raised by DTC brands
It is estimated that there are now over 400 DTC brands globally and since 2012, DTC brands are estimated to have raised over $ 3b of capital, about half of which was raised in 2018 itself.
Investors have realised that most of their money is going to expensive and ever-rising customer acquisition costs (‘CAC’) via Google, Facebook, and Instagram. As a DTC investor put it, ‘CAC is the new rent’.
How these DTC brands fared
- com’s holding company ‘Quidsi’ got acquired by Amazon for $ 545m in 2011, which it finally shut down in 2017 as it failed to turn it profitable. It was a great brand which continued to offer its selection on Amazon.com
- Warby Parker founders raised their first $ 2,500 while at getting their MBAs at Wharton and it got valued at $ 1.75 b a decade later. It raised its last round of $ 245m in Aug 2020 at a $ 3b valuation, has been profitable since 2018 and the founders talk about an IPO like it is a ‘when’ but not an ‘if’.
- Bonobos got acquired by Walmart for $ 310m in cash in 2017, as it increased in focus on
- Casper which was once valued at over $ 1b in a private round, IPO’ed in Feb 2020 at around a third of this valuation and has a market cap of $ 320m. There are 175 online mattress companies, and one cannot tell them apart
- Away raised a total of $ 181m funding at a $ 1.4b valuation but soon found itself meshed in a PR crisis and is trying to recast itself and has many adjacent venture-funded expansion in the works trying to position Away as not just a travel company but playing a role in all kinds of products that one might need to carry along during a travel
- Harry’s cut a $ 1.37b deal in May 2019 to get acquired by Edgewell compared to its competitor Dollar Shave Club which got acquired by Unilever for $ 1b (at 5.5 – 6x revenues) 3 years ago. It was to give Edgewell the millennial edge – the data, marketing prowess and R&D but this acquisition did not consummate, and the co-founders of Harry’s are pursuing legal action against Edgewell
- Allbirds recently raised its Series E round of $ 100m at a valuation of $ 6b in Sep 2020
Indian DTC brands
Indian DTC startups have raised $2 Bn in the past 8 years. In year 2021, 28 startups have raised $290.7 Mn.
Fashion DTC brands raised $756 Mn between 2014 and 2021 with a CAGR of 27.5%. Lenskart, Bluestone and Zivame were the most funded fashion startups in the DTC space.
FMCG startups have raised a total of $677 Mn funding between 2014 &2021 and witnessed a growth of 135% in funding in 2021 as compared to last year. In DTC home décor startups raised $477 Mn funding during 2014-2021. Pepperfry, Furlenco and Wakefit are major home décor brands in this space.
India is said to be a decade behind the US when it comes to DTC brands.